Spending cuts mean red flag raised above property

Cuts in public spending have caused a surge in property companies in financial distress, recovery specialist Begbies Traynor said today.

The number of property and construction companies in financial distress rose in the final quarter of 2010, the first rise in nine months, the company said.

The latest Red Flag Alert issued by Begbies Traynor, the UK’s leading business recovery specialist, shows that the number of companies in these two sectors suffering financial distress has risen by 18% over the last quarter, to over 33,000.

In the construction sector specifically, the number of companies experiencing ‘significant’ or ‘critical’ financial problems rose by 21% to 19,167 in Q4 2010, from 15,894 in Q3 2010, and year on year by 8% when compared to 17,736 in Q4 2009.

The property industry has been similarly affected, with the number of companies experiencing financial problems increasing by 16% to 13,982 in Q4 2010, compared with 12,097 in Q3 2010. Looking at the year on year comparison for the property services sector the change is yet more severe, with the number of struggling businesses rising by 21%, from 11,556 in Q4 2009.

Across all sectors, Begbies Traynor found the number of UK companies facing ‘significant’ or ‘critical’ financial problems has risen to almost 148,000, the first year on year increase for seven quarters. In addition, those facing ‘critical’ problems alone are now struggling with nearly £53 billion worth of liabilities.

Nick Hood, partner at Begbies Traynor, said: “Over 33,000 construction and property services businesses were showing signs of financial distress in Q4 2010, making this the worst hit sector in the UK economy.  Whilst the 18% rise since Q3 2010 is not the biggest deterioration, this only reflects the fact that this part of the UK economy was the first to feel the impact of public spending cuts with many capital projects being cancelled in Q3 2010 well before the CSR announcement in October 2010.”